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SS is insurance against outliving your savings, not savings. The way insurance works is that all the money goes into a one pot and comes back out as people need it. If you need less of it (because you don't live as long as some others) then you get less. SS is a little different as they base how much you need in a month on what you made in your best years.
I understand, but I did pay SS insurance for every dollar I earned for decades but I didn't pay a dime into my pension for which I just worked long enough to be vested--otherwise I would be getting nothing.
My mother had a similar scenario with an insurance company years ago: relatively minor lump sum or small monthly payout. She turns 89yo next month & occasionally remarks on the thousands of $$$ she has gotten on the monthly payouts over the last 30 years or so, says it's one of the best decisions she made.
Here are the reasons I did take a former employer's offer of lump sum payout, and rolled to an IRA.
If I had gone with the monthly payout, at age 71 (now), the additional income would have pushed me from the 15% tax bracket to the 25%. Combining the monthly pension with IRA RMDs, interest, dividends, taxable SS benefits, etc would have done that. Avoiding the monthly pension kept me in the 15% bracket. Yes, the lump does increase my RMD, but not enough to go over to 25%. Also a slight increase in taxable SS benefits.
Also, if I die early, my children get the benefit of the lump now in the IRA. I'm age 71, widowed.
And the offer was made because former employer was selling the entire pension plan to an insurance co, and I wasn't too thrilled about that.
$230 x 12 = $2760 / yr
$32000 x .04 = $1280 / yr
Pension has employer bankruptcy risk, but, in theory, PBGC makes it zero risk.
Keep the pension.
Unless you want complete control over your money.
They are doing this so they can remove you from their liabilities.
This. If this wasn't a good deal for the former employer, they wouldn't have offered it.
The chances of you investing that $32k well enough to even make 4% a year ($100/month) are probably not all that good. If you really don't need that extra $230 a month now, there's no law that says you can't stash it in the bank (or better yet, credit union) until such time that you might need/want to spend all or some of it. If you didn't spend any of it, you'd have more than $33k at the end of 12 years ... and still be getting $230 a month.
Realistically, $32K is not going to buy you much long term care, so stashing it for that seems pretty futile. OTOH, one thing that that extra $230/month could buy you well into the future is a Medicare Supplemental Insurance F or G level policy that covers just about everything that Medicare A & B doesn't, so you would have no worries about paying big health care costs out of pocket.
As for taxes, no state taxes SS benefits, and pension income of < $3k is not going to be taxed enough to worry if it's taxed at all. The feds only tax SS benefits if your pension and other income is over a minimal threshold that's considerably higher than $2760 a year. In other words, this small pension isn't going to force you to pay more in taxes.
Then, there's the case of Hefe's mom to consider:
Quote:
Originally Posted by Hefe
My mother had a similar scenario with an insurance company years ago: relatively minor lump sum or small monthly payout. She turns 89yo next month & occasionally remarks on the thousands of $$$ she has gotten on the monthly payouts over the last 30 years or so, says it's one of the best decisions she made.
There are some very "bright" pencil necks crunching the numbers on these pension plans. They know more about you than you know about yourself.
If they are offering to "buy you out" (that is, pay you a lump sum in exchange for your receiving a monthly benefit until your death) you can be assured that it is to THEIR advantage, and not yours. Sounds good...get $32,000.....but, in reality, your monthly benefit, over your "expected" life span, is worth more.
Trust me, THEY know....or they would not be trying to buy you out. I had the same offer from Citibank a while back. Quick answer (especially when they are involved): NO.
Extra $230 a month could take care of a continuous bill such as some utilities or insurance if you still drive. I would go the most "guaranteed" route with the money. $32,000 in the hand can go quick.
There are some very "bright" pencil necks crunching the numbers on these pension plans. They know more about you than you know about yourself.
If they are offering to "buy you out" (that is, pay you a lump sum in exchange for your receiving a monthly benefit until your death) you can be assured that it is to THEIR advantage, and not yours. Sounds good...get $32,000.....but, in reality, your monthly benefit, over your "expected" life span, is worth more.
Trust me, THEY know....or they would not be trying to buy you out. I had the same offer from Citibank a while back. Quick answer (especially when they are involved): NO.
And to double check, you can do the math in reverse using this calculator: Annuity Calculator - CNNMoney
Enter your state, your age, sex and the 32000 amount and it will tell you what an annuity would pay. Bet it is less than $230...
EDIT - Using your age (62 as you mentioned earlier), male and my state it came up with $167. Yes, I am sure they would love for you to jump at this.
My mother had a similar scenario with an insurance company years ago: relatively minor lump sum or small monthly payout. She turns 89yo next month & occasionally remarks on the thousands of $$$ she has gotten on the monthly payouts over the last 30 years or so, says it's one of the best decisions she made.
I crunched the numbers and my monthly payment would exceed $32,000 in under 12 years, so if I live past 77 I'll get every cent of the money that I contributed nothing to its total. I had a grand uncle who lived to be 102 so who knows.
EDIT - Using your age (62 as you mentioned earlier), male and my state it came up with $167. Yes, I am sure they would love for you to jump at this.
Yes, and it's a "Limited Time Offer: You must act in 30 days or miss this opportunity!"
I think I'll stick with the $230/month. That's all I was expecting anyways and I'm not lusting to buy anything or go anywhere.
Extra $230 a month could take care of a continuous bill such as some utilities or insurance if you still drive. I would go the most "guaranteed" route with the money. $32,000 in the hand can go quick.
I sold my car because it is just too much of a hassle and I don't need one. So no paying insurance or worrying about what's going to go wrong next. I don't know how much of that $230 will be left if Medicare takes a bite out of it. Plus it might put me over the income line where I no longer qualify for benefits I now get. It would be ironic if in the end I would have been better off without it altogether.
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I took the buyout
